On Behalf of | Apr 24, 2020 | Volunteer Defense

Recently, the Mississippi Supreme Court adopted a broad interpretation of the “volunteer defense” to claims asserting equitable subrogation and indemnity. The Court in Colony Ins. Co. v. First Specialty Ins. Corp., 262 So.3d 1128 (Miss. 2019) held that when an insurance company settles a claim while it was simultaneously contesting whether it had an insured relationship with the putative insured defendant, the settling liability insurer acted as a volunteer in settling the claim and, therefore, could not bring an equitable subrogation against other insurance companies.

The voluntary payment doctrine was adopted by the Mississippi Supreme Court in 1934. See, McLean v. Love, 157 So.361, 362 (1934). In the McLean case, the Court found that “a voluntary payment cannot be recovered back.” The Court described a voluntary payment as being a payment made “without compulsion or fraud, and without any mistake of fact,” or a demand which the payor did not owe and which was not enforceable against the payor. Later, the Mississippi Supreme Court amplified the voluntary payment doctrine by finding that the payor’s obligation to pay can be either “legal or moral.” See, Indemnity Ins. Co. of N. Am. v. Guidant Mut. Ins. Co., 99 So.3d 142, 150 (Miss. 2012).

Upon submission of a certified question from the U.S. 5th Circuit Court of Appeals, the Mississippi Supreme Court addressed the issue of what constituted “compulsion” under Mississippi law. Citing to Black’s Law Dictionary and other cases, the Mississippi Supreme Court found that a payment is not compulsory when it was made to protect one’s own interest in avoiding a lawsuit or minimizing liability; instead, there must be “an immediate and urgent necessity” for the payment. In situations where the carrier contested any obligation to the putative insured, the Court found that the insurance company only made the settlement payment out of a “fear” that the putative insured “might be” an additional insured, and that the exclusion in its policy might not apply. The Court found that such a fear of additional potential and uncertain exposure was not compulsion in Mississippi. As an additional element of the Court’s finding was the fact that the insurer’s settlement occurred only four months after the filing of the wrongful death lawsuit while a declaratory judgment lawsuit was still pending. At that time, the insurer had the option to pursue the declaratory judgment to obtain an equitable remedy instead of settling when the wrongful death lawsuit was still at an early stage.